First-time buyers trigger sales surge

Low interest rates and lower prices ushering in a market recovery

By Carla Wilson, Times Colonist; With files from Canwest News ServiceMay 27, 2009 6:29 AM

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Victoria's housing market is picking up after slump in prices.

Photograph by: Debra Brash, Times Coionist

First-time home buyers lured by lower prices and low interest rates are triggering a chain reaction of sales throughout Canada's housing market, says a leading real estate firm.

"When first-time buyers stepped out of the market in the fourth quarter of 2008, at the height of the global recession, their absence was profoundly felt," said Phil Soper, president of Royal LePage Real Estate Services.

Newcomers are "back in force this spring, and with them the beginnings of a market recovery," he said.

In British Columbia, 92 per cent of potential first-time buyers are motivated by low interest rates, and 96 per cent said dropping home prices will likely encourage them to make a purchase, said a Royal LePage report released yesterday.

Research shows how closely the housing market is linked to broader economic trends and consumer confidence, Soper said. Across the country, survey respondents said low interest rates, the first-time home buyers' tax credit and their own job security are critical factors in whether they decide to buy.

Pollara Research carried out an online survey for Royal LePage in April and May of 474 Canadians likely to buy their first home within three years.

With a 100 per cent response rate, it would have an estimated margin of error of plus or minus 4.5 per cent, 19 times out of 20. Data was weighted to reflect Canada's population according to census data.

In B.C., 40 per cent of newcomers to the housing market are planning to buy a "fixer-upper," the report said.

Among first-time buyers, 60 per cent are women, the report said. That figure makes sense because women are increasingly participating in all levels of the workforce and increasing their income, said Cameron Muir, B.C. Real Estate Association chief economist.

Wayne Schrader, CEO of Re/Max Camosun in Saanich, agrees that low interest rates are attracting first-time buyers as they shop in what can be a competitive market, particularly for single-family houses priced at $500,000 or less, an entry level price in the capital region.

"We are starting to see multiple offers out there," Schrader said. And some homes are selling for above the listing price.

After dismal sales in winter months, numbers have picked up again, although not to the high levels seen in 2007 when the market was red hot.

In the past two months, interest has increased for homes in the $600,000 to $900,000 range, he said.

Dianne Usher, a Royal LePage vice-president focused on the Toronto market, said first-time buyers are a crucial element to the overall housing market because of their "domino effect."

"When the first-time buyer is out there and active in the marketplace, it creates a first-time seller, a second-time buyer, a third-time buyer, and on up the food chain," she said.

First-time home buyers occupy between 30 and 35 per cent of the overall market, Usher said.

Mortgage rates to remain stable: CMHC

Tuesday, 19 May 2009

Mortgage rates are expected to remain within 25 to 75 basis points of their current level for the remainder of 2009, according to CMHC's second quarter Housing Market Outlook, keeping them "very low in a historical context."

"Movements in mortgage rates are difficult to predict due to volatile economic conditions," the report stated. "Nevertheless, rates are expected to remain steady this year and edge higher in 2010."

Along with mortgage rates, CMHC listed employment, net migration and low birth rate as having key effects on residential construction, and forecast housing starts to decline to 141,900 in 2009 (most notably in Alberta and Saskatchewan) before rebounding to 150,300 in 2010.

"The decline in housing starts in 2009 can be attributed to several factors, including the current economic climate, increased competition from the existing home market, and the impact of strong house price growth between 2002 and 2007," said CMHC chief economist Bob Dugan. "Housing market activity will begin to strengthen in 2010 as the Canadian economy recovers, bringing housing starts more in line with demographic fundamentals over the forecast period.

May 11, 2009

A Turning Point?

Keep an eye on the bond market. Five-year government bond yields rose to a 70-day high on May 7th.

They were up again to 2.14%, after breaking a 4-month high on Friday. Yields have been steadily climbing for five weeks.

A Turning Point?

As savvy readers are aware, bond yields influence fixed mortgage rates. One capital markets expert told us that rates have reached an “important threshold.” Based on current 5-year yields, “lenders should be thinking of moving rates up,” he said.

We also saw the following from a mid-size lender: “Keep an eye on lenders’ rates--especially quick close offers”…the “increase in bond yield (and the decrease in spread--down 10 today) is something to watch…If the bond yield continues to go up, this could be a trigger for interest rates to rise.” Some lenders are pulling their quick close specials.

Mortgage shoppers (and variable-rate holders thinking of locking in) should take note. Bond yields are pushing up lenders’ funding costs. On a 5-year fixed, many lenders are paying a base cost of roughly 55 to 100 BP’s over 5-year Canada bond yields to raise capital. This is capital they lend out as 5-year fixed mortgages. That equals a base funding cost of roughly 2.69% to 3.14%. If the “average” lender wants to offer a discounted 5-year fixed rate of 3.85%, that leaves a gross spread of 0.71% to 1.06%. That’s near or below the minimum that some lenders need to operate, given all their other operational costs.

If we see bond yields continue up, lenders may have little choice but to adjust rates higher. The rise in yields is being fueled further by the stock market rally and recent better-than-expected economic activity. Today’s employment reports are case in point. Coupled with the technical and supply/demand forces now affecting bonds, all of this is bearish for bond prices and bullish for bond yields.

When Will Fixed Rates Increase?

We can only guess. Different lenders have different cost structures. Some lenders will be able to hold out longer than others. Scotiabank, for example, might have a 25 bacost advantage (or more) over a small mortgage-only lender.

That, the spring market, and vicious rate competition, will likely keep rates lower than at other historical turning points. We’re in the biggest volume quarter of the year, which is prime time for lenders to build market share. No one will want to be the first to hike rates.

Regarding non-bank lenders, they will probably try to avoid exceeding 3.95% for the time being. 3.95% is a benchmark rate because it’s the discounted 5-year fixed rate advertised by the big banks.

What About Variable Rates?

(BA)Banker acceptance yields, which drive variable rates, have been holding around 0.30%-0.40%. If the Bank of Canada keeps true to its conditional pledge, they may stay there until June 2010.

On the other hand, with one ounce of inflation above 2%, that pledge could be an afterthought. The BoC will not hesitate to raise rates if an economic recovery comes knocking sooner than anticipated.

On the funding side, big banks are currently flush with cash. Most large deposit-taking institutions have a material advantage in variable-rate funding costs over the typical mortgage-only lender ( First National / MCAP / Merix). (Interestingly, however, they’re not exercising this advantage…yet). The capital markets consultant we spoke with pegged that advantage at 40-60 basis points. That’s primarily because small mortgage lenders have to rely on government-backed liquidity sources (like the Canada Mortgage Bond) to generate capital for variable-rate mortgages.

As a result, unless variable-rate spreads improve (i.e., the difference between prime rate and 30-day Bankers Acceptance yields increases), then most future near-term variable-rate deals might be through larger deposit-taking lenders. Moreover, with the BA spread at 1.85%, and liquidity premiums (the extra that lenders need to pay to raise variable-rate capital) at 0.50% to 1.20%, the base cost of funding a variable-rate mortgage is roughly:

• 0.90%-1.00% for a huge bank, to…
• 1.60% for a small lender who relies on an aggregator (middleman) to resell its mortgages into the Canadian Mortgage Bond market.

What This All Means to Homeowners

If you want a fixed rate, there is no reason to wait. If bond yields keep rising, time could be an enemy.

If you want a variable rate, it doesn’t look like they’re going up anytime soon.

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The disclaimer: Virtually no one can accurately and consistently predict interest rates long-term. This is not a prediction or recommendation. Market conditions can change at any time. All funding cost estimates are just that, estimates. They can change drastically from lender to lender

Spring Real Estate Sales Soar
May 01

Sales of homes and other properties throughout Greater Victoria soared in April while prices remained stable with some modest fluctuations up and down, depending on the property type. A total of 747 homes and other properties sold in April through the Victoria Real Estate Board’s Multiple Listing Service® (MLS®), up 24 per cent from the 602 sales in March. There were 768 sales in April of last year. Prices for single family homes showed some increase while condo and townhome prices were mixed.

Victoria Real Estate Board President, Chris Markham, says the substantial increase in sales last month is very encouraging, “While sales so far this year are still running 28 per cent lower than for the first four months of last year, we have seen a dramatic upswing in market activity in the past couple of months with sales last month quite close to those of April of last year. We feel this demonstrates renewed confidence in the market.”

Markham added sales have been particularly strong in the mid-range of prices with one third of all single family homes last month selling for under $450,000. Markham noted that prices remained strong and stable in April. The average price for single family homes sold in Greater Victoria last month was $550,736, up from $534,689 in March. The median price also rose to
$515,000. The six-month average was $540,179. The overall average price for condominiums was $292,252 last month, virtually unchanged from $294,393 in March. The average for the last six months was $285,848.

The median price for condominiums rose in April to $273,950. The average price of all townhomes sold last month was $400,695 down slightly from $405,003 in March. The median price rose, however, to $390,000. The six month average was $399,826.
There were 3,861 properties available for sale at the end of April, virtually unchanged from the 3,859 properties available in the same month a year ago. There were also 3,859 properties available for sale at the end of March of this year.

MLS® sales last month included 421 single family homes, 204 condominiums, 74 townhomes and 11 manufactured homes.